This work analyzes and models the nature and dynamics of organizational memory, as such an essential ingredient of organizational capabilities. There are two sides to it, namely a cognitive side, involving the beliefs and interpretative frameworks by which the organization categorizes the states of the world and its own internal states, and an operational one, including routines and procedures that store the knowledge of how to do things. We formalize both types of memory by means of evolving systems of condition-action rules and investigate their performance in different environments characterized by varying degrees of complexity and non-stationarity. Broadly speaking, in simple and stable environments memory does not matter, provided it satisfies some minimal requirements. In more complex and gradually changing ones more memory is better. However there is some critical level of environmental instability above which forgetfulness is evolutionary superior from the point of view of long term performance. Moreover, above some (modest) complexity threshold stable and robust cognitive categorizations and routinized behavior emerge.

Contemporary complexity theory has been instrumental in providing novel rigorous definitions for some classic philosophical concepts, including emergence. In an attempt to provide an account of emergence that is consistent with complexity and dynamical systems theory, several authors have turned to the notion ofconstraints on state transitions. Drawing on complexity theory directly, this paper builds on those accounts, further developing the constraint-based interpretation of emergence and arguing that such accounts recover many of the features of more traditional accounts. We show that the constraint-based account of emergence also leads naturally into a meaningful definition of self-organization, another concept that has received increasing attention recently. Along the way, we distinguish between order and organization, two concepts which are frequently conflated. Finally, we consider possibilities for future research in the philosophy ofcomplex systems, as well as applications of the distinctions made in this paper.

Behavioral economics attempts to integrate insights from psychology, neuroscience, and sociology in order to better predict individual outcomes and develop more effective policy. While the field has been successfully applied to many areas, education has, so far, received less attention – a surprising oversight, given the field's key interest in long-run decision-making and the propensity of youth to make poor long-run decisions. In this chapter, we review the emerging literature on the behavioral economics of education. We first develop a general framework for thinking about why youth and their parents might not always take full advantage of education opportunities. We then discuss how these behavioral barriers may be preventing some students from improving their long-run welfare. We evaluate the recent but rapidly growing efforts to develop policies that mitigate these barriers, many of which have been examined in experimental settings. Finally, we discuss future prospects for research in this emerging field.

In recent years, behavioral economics has emerged as a bona ﬁde subdiscipline of economics (cf. [Rabin, 2002, 657–658; Sent, 2004, 735–737]). At the time of writ-ing, virtually all top U.S. economics departments have behavioral economists onstaff. Behavioral papers appear in prime journals, and the number of doctoral dissertations, conferences, hirings, tenurings, etc. is increasing rapidly. Meanwhile,behavioral economists have been awarded the highest recognitions: MacArthur Fel-lowships, the John Bates Clark Medal, and most prominently, the Nobel MemorialPrize. Although a comparatively young ﬁeld, it is possible to discern relativelydistinct phases in the development of behavioral economics. The ﬁrst phase, whichwe will argue began in 1980, involved identifying anomalies — commonly observedeconomic phenomena that were inconsistent with standard theory — and explain-ing them in relatively loose psychological terms. The second, which began ap-proximately a decade later, incorporated behavioral assumptions into increasinglysophisticated, mathematically rigorous models of economic phenomena at boththe micro and the macro levels [Rabin, 2002, 658]. The third phase, once againunfolding approximately a decade later, has involved the systematic application of behavioral economics to issues of public policy (see, e.g., [McCaﬀery and Slemrod,2006; Diamond and Vartiainen, 2007]).

Categories: Alternative Investments, Behavioral Finance, Drivers of Value, Economics,Leadership, Management & Communication Skills, Portfolio Management, Standards, Ethics & Regulations (SER) Suddenly, proponents of the urban myth that our drinking water is poisoned seem to be correct. Scientists have discovered traces of the harmful and addictive drug cocaine in the United Kingdom’s water supply even after it had been intensively purified. According to one newspaper headline, “Cocaine Use in Britain Is So High It Has Contaminated Drinking Water.” But this is small fry compared to the scale of contamination of US drinking water. With 10% of Americans now taking antidepressantsand half on prescribed medications, “your tap water is probably laced with antidepressants” and harmful chemicals according to one report. Worse still, studies are blaming contaminated water for physical and behavioral changes, such as fish losing interest in their food, or even becoming “intersex” fish whereby male fish grow ovaries and start laying eggs. As markets hit new highs, we explore whether rational economic man, the bedrock of many financial theories and valuation models, is subject to unseen and adverse physiological influences.

Abstract: In this paper we establish a link between probabilistic cost efficiency and bounded rationality in the newsvendor model. This establishes a framework where bounded rationality can be examined rigorously by statistical methods. The paper offers a relatively deep theoretical analysis of underorders/overorders in the newsvendor model. The theory is supported by empirical findings from our analysis of empirical data from laboratory experiments. In particular, we observe that underorders are systematically larger than overorders, an issue that our theoretical model explains. From statistical tests we conclude that all variability in our data can be explained by probabilistic cost efficiency and risk aversion.

The highlight of the award winning film, "The Imitation Game", is when Alan Turing and colleagues devise an ingenious statistical method that eventually helped decipher the Nazis' Enigma code. This breakthrough allowed Allied intelligence to read previously unavailable German military positions and actions, vastly shortening World War II. Interestingly, a team of neuroscientists at Columbia University found that more or less the same statistical method applied by Turing and co. is used by the brain to make any kind of decision, be it going left instead of right in an intersection or placing a higher bet during a high raise power game instead of folding.

Companies get it wrong when they think workers simply calculate the tradeoff between effort and money.

When my kids were small, we participated in a neighborhood carpool. One morning, on my turn, my son had to stay at home due to an illness, and I was going to drive only the neighbors' children to school. The routine morning phone call to my mom ended with the following request: "Drive safely! Those are someone else's kids!"

Crazy as it sounded, my mom was conveying a commonly held moral concern—that I should be more respectful of things that are dear to my friend than dear to me. Most of us, surprisingly, share this stance. And it’s not necessarily because we are altruists, but because it serves us well from a social point of view.

Imagine, as another example, that you forget to pay your parking ticket and incur a $60 added fine. Now suppose instead that you forget to pay your friend's ticket (who has asked you to do so since he is away on vacation) and you incur that same fine for your friend. Which would make you feel worse?

This talk for the How To Academy coincides with the publication of Richard Thaler’s new book on behavioural economics. Richard Thaler has spent his career studying the radical notion that the central agents in the economy are humans—predictable, error-prone individuals. Traditional economics assumes rational actors. Early in his research, Thaler realized these Spock-like automatons were nothing like real people. Whether buying an alarm clock, selling football tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments. Coupling recent discoveries in human psychology with a practical understanding of incentives and market behaviour, Thaler will enlighten us about how to make smarter decisions in an increasingly mystifying world, revealing how behavioural economic analysis opens up new ways to look at everything.

Paul Offit likes to tell a story about how his wife, pediatrician Bonnie Offit, was about to give a child a vaccination when the kid was struck by a seizure. Had she given the injection a minute sooner, Paul Offit says, it would surely have appeared as though the vaccine had caused the seizure and probably no study in the world would have convinced the parent otherwise. (The Offits have such studies at the ready — Paul is the director of the Vaccine Education Center at the Children’s Hospital of Philadelphia and author of“Deadly Choices: How the Anti-Vaccine Movement Threatens Us All.”) Indeed, famous anti-vaxxer Jenny McCarthy has said her son’s autism and seizures are linked to “so many shots” because vaccinations preceded his symptoms.

But, as Offit’s story suggests, the fact that a child became sick after a vaccine is not strong evidence that the immunization was to blame. Psychologists have a name for the cognitive bias that makes us prone to assigning a causal relationship to two events simply because they happened one after the other: the “illusion of causality.” A study recently published in the British Journal of Psychology investigates how this illusion influences the way we process new information. Its finding: Causal illusions don’t just cement erroneous ideas in the mind; they can also prevent new information from correcting them.

When scientists at Caltech studied the brains of traders who successfully maneuvered through a market bubble, they found markers of two different traits.

One was something along the lines of anxiety. Successful traders, defined as those who sold before the bubble popped in a lab, sensed in themselves an unease stemming from the perception of uncertainty. They had higher-than-normal activity in an area of the brain known as the insula, which keeps track of how the body is feeling, said Colin Camerer, behavioral finance and economics professor at the California Institute of Technology. It's known to be activated by financial risk.

Decision theorist Howard Raiffa [1968] introduces useful distinctions among three approaches to the analysis of decisions. Normative analysis is concerned with the rational solution to the decision problem. It defines the ideal that actual decisions should strive to approximate. Descriptive analysis is concerned with the manner in which real people actually make decisions. Prescriptive analysis is concerned with practical advice and help that people could use to make more rational decisions. Financial advising is a prescriptive activity whose main objective should be to guide investors to make decisions that best serve their interests. To advise effectively, advisors must be guided by an accurate picture of the cognitive and emotional weaknesses of investors that relate to making investment decisions: their occasionally faulty assessment of their own interests and true wishes, the relevant facts that they tend to ignore, and the limits of their ability to accept advice and to live with the decisions they make. Our article sketches some parts of that picture, as they have emerged from research on judgment, decisionmaking and regret over the last three decades

Complexity science reframes leadership by focusing on the dynamic interactions between all individuals, explaining how those interactions can, under certain conditions, produce emergent outcomes. We develop aLeadership of Emergence using this approach, through an analysis of three empirical studies which document emergence in distinct contexts. Each of these studies identifies the same four “conditions” foremergence: the presence of a Dis-equilibrium state, Amplifying actions, Recombination/“Self-organization”, and Stabilizing feedback. From these studies we also show how these conditions can be generated through nine specific behaviors which leaders can enact, including: Disrupt existing patterns through embracing uncertainty and creating controversy, Encourage novelty by allowing experiments and supporting collective action, Provide sense-making and sense-giving through the artful use of language and symbols, and Stabilize the system by Integrating local constraints. Finally, we suggest ways for advancing a meso-model of leadership, and show how our findings can improve complexity science applications in management.

Recent developments in virtual reality (VR) technology have the potential to revolutionize the way economists do experimental research. With Oculus’ light and affordable head mounted display (HMD) human subjects can literally move and use objects in virtual spaces and interact with others. This technology as well as surround-screen projection systems like CAVEs (Cruz-Neira et al. 1994), allow the experimenter to observe economically relevant behavior and social interaction in a highly immersive and at the same time tightly controlled virtual environment. More than other disciplines, economics focuses on the evaluation of counterfactual scenarios which help to analyze strategic decisions and their efficiency effects. In this note, by means of three examples, we illustrate how experiments in highly IVEs can add value to experimental economics and benefit economic research.

When it comes to valuing stocks, the most reliable valuations come from imaginative number crunchers and disciplined storytellers, says Aswath Damodaran. And too often pure “numbers” people drift off into what he calls “spreadsheet nirvana.” Similarly, investors who focus purely on the narrative of a potential investment run the risk of quickly “veering from reality to fantasy.”

Damodaran, who teaches valuation and corporate finance at the Stern School of Business at New York University (NYU), made these remarks at the recent CFA Institute Equity Research and Valuation Conference 2014 inBoston, where he urged attendees to bridge the gap between numbers and narratives, insisting that the best valuations are not just “a collection of numbers, but a story connected to numbers.”

Damodaran acknowledged the critical role that numbers play in the valuation process, but he warned that they should be used judiciously. Due to mission creep, he thinks accounting statements have become increasingly difficult to navigate and fair value accounting has become an oxymoron, allowing for bias and the illusion of objectivity in valuations. Similarly, the emergence of Big Data as an input into sophisticated valuation models driven by “Excel Ninjas,” and the accompanying notion that “more is better,” has its limits. Adding an extra decimal place to your model’s projected operating profit margin conveys a false sense of precision with no meaningful improvement in outcomes.

Do you know of anyone who has suppressed bad news to preserve their career or reputation?Or told the boss what they wanted to hear instead of the truth?Or overlooked a red flag to preserve the sense of harmony in the workplace?Most often ego is catalogued as 'good' or 'bad', but what if it's simply about your relationship with yourself? At the heart of the matter your ego, your self-esteem, self-worth and personal sense of security, chaperons your decision-making. Does the business culture have an impact on your ego?It’s absurd to pretend that the business culture doesn’t have an

Abstract This article develops and empirically tests a quantum probability model for question order effects observed in survey research. First, the general theoretical assumptions are presented; second, an exact parameter free prediction is derived; third, the results from four surveys and one experiment are used to empirically test the prediction; fourth, a new index is derived to measure similarity between questions; finally, we describe the main conditions under which order effects are predicted to occur. In conclusion, quantum theory, initially invented to explain order effects on measurements in physics, provides a powerful explanation for order effects of survey questions too

In this paper I argue that the use of social nudges, policy interventions to induce voluntary cooperation in social dilemma situations, can be defended against two ethical objections which I call objections from coherence and autonomy. Specifically I

Abstract: This article presents the results of study dedicated to the interrelation of trust, cooperative behavior and the size of the winning prize in the multi-way decision modified prisoners’ dilemma. The experiment was organized using a specially designed computer program. The study involved six groups of participants and each group consisted of 7 players. The experiment consisted of a series of 15 rounds and included preliminary and final testing. The study found that cooperative behavior within the members in the group had fallen during 11 rounds, but there was a tendency to improve it. The trust level of an individual and his/her choice of cooperative strategy in the first series of the experiment are interrelated. Generalized trust is a rather stable construct, but it does not remain unchanged with an actual reduction of cooperative behavior.

It’s all about leveraging the unconscious factors that drive 95 percent of consumer decision-making.

It has created a large and growing list of ways that humans diverge from economic rationality. Researchers have found that all sorts of logically inconsequential circumstances—rain, sexual arousal (induced and assessed by experimenters with Saran-wrapped laptops), or just the number “67” popping up in conversation—can alter the value we assign to things. For example, with “priming effects,” irrelevant or unconsciously processed information prompts people to assign value by association (seeing classrooms and lockers makes people slightly more likely to support school funding). With “framing effects,” the way a choice is presented affects people’s evaluation: Kahneman and Tversky famously found that people prefer a disease-fighting policy that saves 400 out of 600 people to a policy that lets 200 people die, though logically the two are the same. While mainstream economists are still wrestling with these ideas, outside of academe there is little debate: The behaviorists have won.

To most people, a cloud of midges is an annoyance. To Nicholas Ouellette it is the key to a mysterious animal behaviour — the swarm.

Ouellette, who works on complex systems at Yale University in New Haven, Connecticut, and his colleague James Puckett, have found that swarms of these insects become self-organizing when their numbers reach just ten individuals.

Their paper, published on 13 August in Journal of the Royal Society Interface1, is part of a small but growing area of research producing data from real swarms to inform models of this behaviour.

Ouellette and Puckett set up laboratory colonies of Chironomus riparius midges, which live for only a few days after reaching adulthood and tend to fly only at dawn or dusk.

“A lot of people will say a swarm is just a whole bunch of insects,” says Ouellette. “I would like to say a swarm is somehow collective and self-organizing.”

Nudge is one of the most important and influential books on behavioral science and public policy I’ve ever read. Co-authored by economist Richard Thaler and lawyer Cass Sunstein, the book lays out the rationale for adopting policies designed to make it more likely that people will act in their own best interests rather than, say, spend money they shouldn’t spend or eat food they shouldn’t consume. In the book, Thaler and Sunstein discuss how recent advances in behavioral science should inform our attitudes towards rational decision making. Specifically, these behavioral science findings show that people don’t always make rational decisions, raising questions about when or whether outsiders—like governments or employers–should step in to help people avoid making bad choices.

But has enthusiasm for the book led people to see nudges where they don’t exist? That was the question I posed in a recent post, where I argued that it was wrong to call a well-designed traffic light a nudge: “Not all good design, even good design that influences behavior, is a nudge,” I wrote. “A well-designed prison cell is more likely to deter prisoners from trying to escape than a poorly designed one. But that does not make it a nudge.”

When asked whether behavioural economics (BE) applies to business-to-business (B2B) as well as business-to-consumer (B2C), "people are people" has been my response. At least it used to be.

"People are people" does have a lot of truth to it. We are the same person when we buy lunch as a consumer as we are when we negotiate a deal with a supplier – our hats may change but our behavioural biases and mental shortcuts do not. We are just as prone to social norms in the boardroom as we are in the bar – we can't simply shut this stuff off just because it's someone else paying.

The RECOBIA project found break-through solutions to improve the quality of intelligence production and delivers applicable solutions to address the human factor in intelligence.

The RECOBIA project found break-trough results in the field of intelligence and in mitigating the negative effect of cognitive biases. The three-year research project identifies ways to improve the work of intelligence officers by reducing the negative effect of those unconscious cognitive mechanisms. RECOBIA came to a close end of January and the findings are now available to interested parties.

The project team deconstructed the activities of intelligence officers and clustered them into Key Intelligence Tasks (KITs). Those KITs describe for the first time what intelligence officers actually do – both from an intelligence as well as from a psychological perspective. The KITs were used to identify the situation and activities in which cognitive biases are likely to impact intelligence officers. Finally, the project team developed mitigation strategies, which are easy to implement and will boost the quality of analysis.

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